Student Debt and Federal Loan Policy Take Center Stage at Senate Hearing

March 28, 2014

Policy makers and higher-education officials used a Senate hearing on Thursday to discuss growing student-loan debt, making the federal student-loan programs easier for borrowers to navigate, and increasing college access for lower-income students.

The Senate Health, Education, Labor, and Pensions Committee, which is taking initial steps toward reauthorizing the Higher Education Act, held the hearing with panelists who promoted ways to improve federal student aid. Suggestions included a simplified loan-repayment plan, additional information about borrowers’ options, and counseling to help guide students through the student-loan process, before and after taking out a loan. The practices of loan-repayment servicers and policies that allow overborrowing also came under fire during the wide-ranging discussion.

Thursday’s hearing followed the announcement of several pieces of legislation aimed at strengthening the federal student-loan programs and reducing debt.

‘Hounding’ of Students

During the hearing, Sen. Lamar Alexander of Tennessee, the top Republican on the committee, said overborrowing may be a factor in rising student-loan debt, and suggested the government could identify ways to prevent students from taking out loans for personal expenses. Currently, students may borrow the same amount of federal student loans whether they are attending college part time or full time.

Marian Malone Dill, director of financial aid at Lee University, in Cleveland, Tenn., said that policy should be changed. Sen. Tom Harkin, Democrat of Iowa and the committee’s chairman, said rising student-loan debt could also stem from graduate-student loans, which are not limited.

Private loan servicers and debt-collection agencies also were part of Thursday’s discussion. James W. Runcie, chief operating officer of federal student aid at the U.S. Department of Education, said the department monitors third-party loan-collection agencies to ensure accountability. But Deanne Loonin, a lawyer with the National Consumer Law Center, encouraged the government to service student loans in-house.

Senator Harkin agreed, adding that loan-collection agencies’ "hounding" of students during the collection process is "outlandish."

Despite rising student-loan debt, Senator Alexander argued that college is actually more affordable than many students think. Citing statistics from the New York Federal Reserve Bank, he said 40 percent of borrowers had student-loan debt of less than $10,000, while less than 4 percent had debt of more than $100,000.

"It’s important for students to know, as they think about going to college, that it can be affordable," Senator Alexander said. "Most students don’t have to borrow too much money if they borrow wisely."

New Legislation on For-Profits

Sen. Richard J. Durbin, Democrat of Illinois, announced on the Senate floor on Wednesday that he would join Mr. Harkin next week in introducing legislation to ensure that federal agencies work together to oversee the for-profit higher-education industry, which Mr. Durbin said was a key player in the growing student-loan burden.

"For many years, for-profit schools were allowed to operate relatively freely and often one step ahead of regulators," Mr. Durbin said in a news release. He said the government was "starting to turn the corner" to better hold for-profit institutions accountable to taxpayers "and to students who ultimately are the victims."

A separate piece of legislation, the Smarter Borrowing Act (S 546), would require colleges to notify Pell Grant recipients of the remaining time they have before becoming ineligible for the federal money. Introduced by Mr. Harkin, the legislation would also require institutions with cohort default rates on federal student loans at or above 30 percent—and thus at risk of losing their eligibility to receive federal student aid—to inform students of their plans to improve repayment rates.